Exhibit 99.1

MBIA INSURANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

As of March 31, 2007 and December 31, 2006

and for the periods ended March 31, 2007 and 2006

MBIA INSURANCE CORPORATION

AND SUBSIDIARIES

INDEX

	PAGE
Consolidated Balance Sheets – March 31, 2007 and December 31, 2006 (Unaudited)	3
Consolidated Statements of Income – Three months ended March 31, 2007 and 2006 (Unaudited)	4
Consolidated Statement of Changes in Shareholder’s Equity – Three months ended March 31, 2007 (Unaudited)	5
Consolidated Statements of Cash Flows – Three months ended March 31, 2007 and 2006 (Unaudited)	6
Notes to Consolidated Financial Statements (Unaudited)	7-11

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands except per share amounts)

	March 31, 2007		December 31, 2006
Assets
Investments:
Fixed maturity securities held as available for sale, at fair value (amortized cost $8,038,877 and $8,360,736)	$	8,258,596	$	8,606,675
Fixed-maturity securities pledged as collateral, at fair value (amortized cost $474,584 and $449,366)		471,825		444,899
Investments held-to-maturity, at amortized cost (which approximates fair value)		1,372,878		1,400,591
Short-term investments, at amortized cost (which approximates fair value)		1,449,976		957,211
Other investments		92,765		90,322
Total investments		11,646,040		11,499,698
Cash and cash equivalents		125,236		181,330
Securities purchased under agreements to resell		447,662		286,278
Accrued investment income		128,959		137,021
Deferred acquisition costs		456,105		449,556
Prepaid reinsurance premiums		347,883		363,140
Reinsurance recoverable on unpaid losses		47,625		46,941
Goodwill		76,938		76,938
Property and equipment, at cost (less accumulated depreciation of $102,240 and $103,325)		97,796		98,470
Receivable for investments sold		42,511		12,103
Derivative assets		28,301		29,466
Other assets		254,586		226,853
Total assets	$	13,699,642	$	13,407,794
Liabilities and Shareholder’s Equity
Liabilities:
Deferred premium revenue	$	3,101,278	$	3,129,620
Loss and loss adjustment expense reserves		533,773		537,037
Securities sold under agreements to repurchase		447,662		286,278
Variable interest entity floating rate notes		1,413,203		1,451,928
Short-term debt		40,898		40,898
Current income taxes		29,213		—
Deferred income taxes, net		394,284		403,865
Deferred fee revenue		11,868		11,973
Payable for investments purchased		296,071		266,061
Derivative liabilities		26,847		25,992
Other liabilities		147,844		195,750
Total liabilities		6,442,941		6,349,402
Commitments and contingencies (see Note 8)
Shareholder’s Equity:
Preferred stock, par value $1,000 per share; authorized shares—4,000.08, issued and outstanding—none		—		—
Common stock, par value $150 per share; authorized, issued and outstanding—100,000 shares		15,000		15,000
Additional paid-in capital		1,698,334		1,690,924
Retained earnings		5,367,882		5,164,572
Accumulated other comprehensive income (net of deferred income tax of $95,314 and $101,216)		175,485		187,896
Total shareholder’s equity		7,256,701		7,058,392
Total liabilities and shareholder’s equity	$	13,699,642	$	13,407,794

The accompanying notes are an integral part of the consolidated financial statements.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands)

	Three months ended March 31
	2007			2006
Revenues:
Gross premiums written	$	223,263		$	180,888
Ceded premiums		(23,078	)		(26,632	)
Net premiums written		200,185			154,256
Decrease in deferred premium revenue		14,241			56,932
Premiums earned (net of ceded premiums of $38,170 and $39,705)		214,426			211,188
Net investment income		141,885			131,581
Net realized gains (losses)		898			(7,495	)
Net gains (losses) on financial instruments at fair value and foreign exchange		(2,020	)		4,040
Fees and reimbursements		10,078			8,084
Other		5			152
Total revenues		365,272			347,550
Expenses:
Losses and loss adjustment		20,484			20,126
Amortization of deferred acquisition costs		16,629			16,266
Operating		29,175			35,822
Interest expense		21,736			12,918
Total expenses		88,024			85,132
Equity in net income (loss) of subsidiaries		(15	)		8
Income from continuing operations before income taxes		277,233			262,426
Provision for income taxes		73,923			67,915
Income from continuing operations		203,310			194,511
Net income (loss) from discontinued operations, net of tax		—			481
Net income	$	203,310		$	194,992

The accompanying notes are an integral part of the consolidated financial statements.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY (Unaudited)

For the three months ended March 31, 2007

(In thousands except per share amounts)

	Common Stock					Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Shareholder’s Equity
	Shares			Amount
Balance, December 31, 2006		100,000		$	15,000	$	1,690,924	$	5,164,572	$	187,896		$	7,058,392
Comprehensive income:
Net income		—			—		—		203,310		—			203,310
Other comprehensive income (loss):
Change in unrealized appreciation of investments net of change in deferred income taxes of $(5,831)		—			—		—		—		(12,917	)		(12,917	)
Change in foreign currency translation net of change in deferred income taxes of $(71)		—			—		—		—		506			506
Other comprehensive loss														(12,411	)
Comprehensive income														190,899
Stock-based compensation		—			—		7,410		—		—			7,410
Balance, March 31, 2007		100,000		$	15,000	$	1,698,334	$	5,367,882	$	175,485		$	7,256,701
	2007
Disclosure of reclassification amount:
Unrealized appreciation of investments arising during the period, net of taxes	$	(12,197	)
Reclassification adjustment, net of taxes		(720	)
Net unrealized appreciation, net of taxes	$	(12,917	)

The accompanying notes are an integral part of the consolidated financial statements.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

	Three months ended March 31
	2007			2006
Cash flows from operating activities of continuing operations:
Net income	$	203,310		$	194,992
Income from discontinued operations, net of tax		—			(481	)
Net income from continuing operations		203,310			194,511
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities of continuing operations:
Decrease in accrued investment income		8,062			6,761
Increase in deferred acquisition costs		(6,549	)		(2,731	)
Decrease in prepaid reinsurance premiums		15,257			13,006
Decrease in deferred premium revenue		(28,342	)		(68,698	)
(Decrease) increase in loss and loss adjustment expense reserves		(3,264	)		8,850
Increase in reinsurance recoverable on unpaid losses		(684	)		(359	)
Depreciation		2,081			2,396
(Increase) decrease in salvage and subrogation		(9,165	)		17,504
Amortization of bond discount (premium), net		3,405			6,186
Net realized (gains) losses on sale of investments		(898	)		7,495
Current income tax provision		29,213			2,722
Deferred income tax (benefit) provision		(3,911	)		3,411
Net losses (gains) on financial instruments at fair value and foreign exchange		2,021			(4,040	)
Stock option compensation		1,845			3,128
Other, net		(48,572	)		(17,433	)
Total adjustments to net income		(39,501	)		(21,802	)
Net cash provided by operating activities of continuing operations		163,809			172,709
Cash flows from investing activities of continuing operations:
Purchase of fixed-maturity securities		(260,216	)		(867,259	)
Sale of fixed-maturity securities		400,807			870,373
Redemption of fixed-maturity securities		2,186			89,145
(Purchase) sale of short-term investments, net		(344,765	)		91
(Purchase) sale of other investments, net		(96	)		1,534
Redemption of held-to-maturity investments		27,713			77,212
Increase in receivable for investments sold		(30,408	)		(2,764	)
Increase (decrease) in payable for investments purchased		30,010			(20,016	)
Capital expenditures		(1,408	)		(1,120	)
Disposals of capital assets		14			5
Other, investing		(143	)		—
Net cash (used) provided by investing activities of continuing operations		(176,306	)		147,201
Cash flows from financing activities of continuing operations:
Principal paydown of variable interest entity floating rate notes		(41,049	)		(34,810	)
Other borrowings and deposits		(1,346	)		(1,478	)
Capital issuance costs		(1,202	)		(699	)
Dividends paid		—			(280,000	)
Net cash used by financing activities of continuing operations		(43,597	)		(316,987	)
Discontinued operations:
Net cash provided by operating activities		—			264
Net cash provided by discontinued operations		—			264
Net increase (decrease) in cash and cash equivalents		(56,094	)		3,187
Cash and cash equivalents—beginning of period		181,330			115,253
Cash and cash equivalents—end of period	$	125,236		$	118,440
Supplemental cash flow disclosures:
Income taxes paid	$	28,234		$	4,019
Interest paid:
Other borrowings and deposits	$	980		$	1,057
Variable interest entity floating rate notes	$	17,892		$	12,055
Non cash items:
Stock compensation	$	1,845		$	3,128

The accompanying notes are an integral part of the consolidated financial statements.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: Basis of Presentation

The accompanying consolidated financial statements are unaudited and include the accounts of MBIA Insurance Corporation and its wholly owned subsidiaries (“MBIA Corp.”), as well as all other entities in which MBIA Corp. has a controlling financial interest. These statements do not include all of the information and disclosures required by accounting principles generally accepted in the Unites States of America (“GAAP”). These statements should be read in conjunction with MBIA Corp.’s consolidated financial statements and notes thereto for the year ended December 31, 2006. The accompanying consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with the standards of the Public Company Accounting Oversight Board (United States), but in the opinion of management such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of MBIA Corp.’s financial position and results of operations.

The results of operations for the three months ended March 31, 2007 may not be indicative of the results that may be expected for the year ending December 31, 2007. The December 31, 2006 balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation. This includes the reclassification of amounts related to MBIA Corp.’s discontinued operations, which had no effect on net income, total assets, total liabilities or shareholder’s equity as previously reported.

NOTE 2: Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109.” FIN 48 requires that the Company determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured to determine the amount of benefit to be recognized in the financial statements. FIN 48 also provides guidance on the derecognition, classification and disclosure of tax positions. MBIA adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a material impact on the Company’s consolidated financial statements. See “Note 7: Income Taxes” for disclosures required by FIN 48.

In February 2006, the FASB issued Statement of Financial Accounting Standards No. (“SFAS”) 155, “Accounting for Certain Hybrid Financial Instruments,” which amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155 permits an entity to measure at fair value any financial instrument that contains an embedded derivative that would otherwise require bifurcation. The fair value designation may be applied on an instrument-by-instrument basis; however, the election to apply fair value accounting is irrevocable. For MBIA Corp., SFAS 155 was effective for those financial instruments acquired or issued on or after January 1, 2007. The adoption of SFAS 155 did not have a material effect on MBIA Corp.’s financial statements.

Standards to be Adopted in Future Periods

On April 18, 2007, the FASB issued an Exposure Draft (“ED”) entitled “Accounting for Financial Guarantee Insurance Contracts”, an interpretation of SFAS 60, “Accounting and Reporting by Insurance Enterprises.” The ED clarifies how SFAS 60 applies to financial guarantee insurance contracts issued by insurance enterprises, including the methodologies to account for premium revenue and claim liabilities, as well as related disclosures. The proposals contained in the ED are not considered final accounting guidance until the FASB completes its due process procedures and issues a final statement, which could differ from the ED. Under the ED, MBIA Corp. would be required to recognize premium revenue only in proportion to contractual payments (principal and interest) made by the issuer of the insured financial obligation. The proposed recognition approach for a claim liability would require MBIA Corp. to recognize a claim liability when there is an expectation that a claim loss will exceed the unearned premium revenue (liability) based on the present value of expected cash flows. Additionally, the ED would require MBIA Corp. to provide expanded disclosures relating to factors affecting the recognition and measurement of financial guarantee contracts.

The ED is subject to a 60-day comment period and the final statement is expected to be issued in the third quarter of 2007. The ED states that the final statement shall be effective for financial statements issued for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. Earlier adoption would not be permitted. The cumulative effect of initially applying the final statement will be recorded as an adjustment to the opening balance of retained earnings for that fiscal year. MBIA Corp. is in the process of evaluating how the exposure draft will impact its financial statements and will be providing comments on the ED to the FASB. Until final guidance is issued by the FASB and is effective, MBIA Corp. will continue to apply its existing policies with respect to the establishment of both case basis and unallocated loss reserves and the recognition of premium revenue. A further description of MBIA Corp.’s loss reserving and premium recognition policies are included in “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in MBIA Corp.’s consolidated financial statements for the year ended December 31, 2006.

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 provides MBIA Corp. an irrevocable option to measure eligible financial assets and liabilities at fair value, with changes in fair value recorded in earnings, that otherwise are not permitted to be accounted for at fair value under other accounting standards. The option is applied, on a contract-by-contract basis, to an entire contract and not only to specific risks, specific cash flows or other portions of that contract. Upfront costs and fees related to a contract for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. MBIA Corp. is currently evaluating the provisions of SFAS 159 and their potential impact on its financial statements. MBIA Corp. expects to adopt the provisions of SFAS 159 beginning January 1, 2008.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157 defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. SFAS 157 requires that fair value measurement reflect the assumptions market participants would use in

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

pricing an asset or liability based on best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model. SFAS 157 also clarifies that an issuer’s credit standing should be considered when measuring liabilities at fair value. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. MBIA Corp. is currently evaluating the provisions of SFAS 157 and their potential impact on its financial statements. MBIA Corp. expects to adopt the provisions of SFAS 157 beginning January 1, 2008.

NOTE 3: Dividends Declared

There were no dividends declared by MBIA Corp. during the three months ended March 31, 2007. On April 25, 2007, MBIA Corp. received approval from the New York State Insurance Department to pay a $500 million dividend to MBIA Inc. Also on April 25, 2007, the dividend was approved by MBIA Corp.’s board of directors, declared and paid.

NOTE 4: Variable Interest Entities

MBIA Corp. provides credit enhancement services to global finance clients through third-party special purpose vehicles (“SPVs”), which are used in a variety of structures insured by MBIA Corp. MBIA Corp. has determined that such SPVs fall within the definition of a variable interest entity (“VIE”) under FIN 46(R), “Consolidation of Variable Interest Entities.” Under the provisions of FIN 46(R), an entity is considered a VIE subject to possible consolidation if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support or if the equity investors lack one of three characteristics of a controlling financial interest. First, the equity investors lack the ability to make decisions about the entity’s activities through voting rights or similar rights. Second, they do not bear the obligation to absorb the expected losses of the entity if they occur. Lastly, they do not claim the right to receive expected returns of the entity if they occur, which is the compensation for the risk of absorbing the expected losses. A VIE is consolidated with its primary beneficiary, which is the entity that will absorb the majority of the expected losses, receive the majority of the expected residual returns, or both, of the VIE.

With respect to third-party SPVs, MBIA Corp. must determine whether it has variable interests in VIEs and if so, whether those variable interests would cause MBIA Corp. to be the primary beneficiary and, therefore, consolidate such entities. Under FIN 46(R), MBIA Corp.’s guarantee of the assets or liabilities of a VIE constitute a variable interest and require MBIA Corp. to assess whether it is the primary beneficiary. Consolidation of such VIEs does not increase MBIA Corp.’s exposure above that already committed to in its insurance policies. VIE assets and liabilities consolidated in MBIA Corp.’s financial statements at March 31, 2007 and December 31, 2006 are related to MBIA Corp.’s guarantee of certain VIEs. Such assets and liabilities are primarily reported in “Investments held-to-maturity” and “Variable interest entity floating rate notes,” respectively, on the face of MBIA Corp.’s balance sheet. The assets and liabilities of these VIEs each totaled $1.4 billion at March 31, 2007 and $1.5 billion at December 31, 2006. Revenues and expenses related to third-party VIEs are primarily recorded in “Net investment income” and “Interest expense”, respectively, on MBIA Corp.’s statements of income and substantially net to zero. Third-party VIEs’ creditors do not have recourse to the general assets of MBIA Corp. outside of the financial guarantee policy provided to the VIE.

MBIA Corp. consolidated two VIEs in the third quarter of 2004 and a third VIE in the fourth quarter of 2006 that were established in connection with the securitizations of Capital Asset Holdings GP, Inc. and certain affiliated entities (“Capital Asset”) tax liens and to which MBIA Corp. provided financial guarantees. In December 2006, MBIA Corp. sold its interest in all of these consolidated VIEs. MBIA Corp. held a variable interest in these entities, which resulted from its insurance policies, and had determined that it was the primary beneficiary under FIN 46(R). MBIA Corp. has reported these VIEs as discontinued operations for periods presented prior to their sale.

NOTE 5: Loss and Loss Adjustment Expense Reserves (LAE)

MBIA Corp. establishes two types of loss and LAE reserves for non-derivative financial guarantees: case basis reserves and an unallocated loss reserve. See “Note 2: Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in MBIA Corp.’s financial statements for the year ended December 31, 2006 for information regarding its loss reserving policy. A summary of the case basis and unallocated activity and the components of the liability for loss and LAE reserves are presented in the following table:

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In thousands	1Q 2007
Case basis loss and LAE reserves:
Beginning balance	$	323,718
Less: reinsurance recoverable		46,941
Net beginning balance		276,777
Case basis transfers from unallocated loss reserve related to:
Current year		2,602
Prior years		31,120
Total		33,722
Net paid (recovered) related to:
Current year		24,248
Prior years		(30	)
Total net paid		24,218
Net ending balance		286,281
Plus: reinsurance recoverable		47,625
Case basis loss and LAE reserve ending balance		333,906
Unallocated loss reserve:
Beginning balance		213,319
Losses and LAE incurred(1)		20,484
Channel Re elimination(2)		(214	)
Transfers from case basis and LAE reserves		(33,722	)
Unallocated loss reserve ending balance		199,867
Total	$	533,773

⁽¹⁾ Represents MBIA Corp.’s provision for losses calculated as 12% of scheduled net earned premium.

⁽²⁾ Represents the amount of losses and LAE incurred that have been eliminated in proportion to MBIA Corp.’s ownership interest in Channel Reinsurance Ltd. (“Channel Re”), which is carried on an equity-method accounting basis.

During the three months ended March 31, 2007, total net case basis activity transferred from MBIA Corp.’s unallocated loss reserve was $34 million. Net case basis activity primarily consisted of loss reserves for insured obligations related to the Student Loan Finance Corporation (“SFC”) and a multi-sector CDO. Partially offsetting these loss reserves were reversals of previously established case basis reserves within the aircraft enhanced equipment trust certificates (“EETCs”) sector. The unallocated loss reserve approximated $200 million at March 31, 2007, which represents MBIA Corp.’s estimate of losses associated with credit deterioration that has occurred in its insured portfolio but have not been specifically identified and is available for future case-specific activity. MBIA Corp. recorded $20 million in losses and loss adjustment expenses in the three months ended March 31, 2007 based on 12% of scheduled net earned premium.

NOTE 6: Transfers and Servicing of Financial Assets and Extinguishments of Liabilities

In the first quarter of 2006 and in connection with its remediation efforts, MBIA Corp. exercised a call right with respect to $411 million of MBIA Corp.-insured Northwest Airlines’ enhanced equipment trust certificates issued by Northwest Airlines Pass Through Trust 2000-1G (the “Certificates”). Under the terms of the trust agreement relating to the Certificates, MBIA Corp. had the right to call the Certificates at par as a result of the bankruptcy filing by Northwest Airlines. MBIA Corp. entered into an agreement with a third party under which the third party financed the call of the Certificates and purchased the Certificates from MBIA Corp. as part of a planned future securitization of the Certificates. MBIA Corp.’s policy guaranteeing payment of the Certificates remains in effect.

Due to certain continuing rights MBIA Corp. possesses with respect to the Certificates, MBIA Corp. recorded the Certificates and the related financing on its balance sheet under the requirements of SFAS 140. The Certificates are included within “Short-term investments” and the related financing is included within “Payable for investments purchased” on MBIA Corp.’s Consolidated Balance Sheets. During the first quarter of 2007, the carrying value of the Certificates and the related financing was $256 million as a result of principal payments associated with the sale of certain aircraft collateralizing the Certificates. At such time that MBIA Corp. no longer possesses its continuing rights with respect to the Certificates, including the potential completion of a securitization of the Certificates, the Certificates and the related financing are expected to no longer be recorded on MBIA Corp.’s Consolidated Balance Sheets.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7: Income Taxes

MBIA Corp. adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a material impact on MBIA Corp.’s financial statements. Prior to the adoption of FIN 48, MBIA Corp. classified interest and/or penalties related to income taxes as a component of income from continuing operations. In connection with the adoption of FIN 48, MBIA Corp. has elected to classify interest and penalties as components of income taxes. The total amount accrued for interest and penalties was $4.2 million and no interest and penalties were recognized during the first quarter of 2007.

MBIA Corp.’s major tax jurisdictions include the U.S., the United Kingdom (“U.K.”) and France. MBIA Insurance Corporation and its U.S. subsidiaries file a U.S. consolidated federal income tax return. Federal income tax returns have been examined through 2004. During the first quarter of 2007, the Internal Revenue Service has commenced the examination of the 2005 Federal income tax return. The U.K. tax matters have been substantially concluded through 2002. The French tax authority has concluded the examination through 2003 with the issue on the recognition of premium income for tax purposes pending resolution.

The total amount of unrecognized tax benefits at the date of adoption was $28.8 million, which was included in the tax reserves. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was approximately $2.3 million.

In April 2005, the French tax authority commenced an examination of MBIA Corp.’s French tax return for 2002 and 2003. Upon completion of the audit, MBIA Corp. received a notice of assessment in which the French tax authority has accelerated the way in which MBIA Corp. recognizes earned premium for tax purposes, contrary to the French statutory method. MBIA Corp. has protested and has filed for an appeal with respect to the assessment and MBIA Corp.’s position is currently under review. Due to the uncertainty surrounding the outcome of the examination, MBIA Corp. accrued the potential tax liability relating to the French tax audit for all open tax years through 2006 prior to the adoption of FIN 48. The total amount accrued with respect to the uncertain tax position is approximately $26.5 million and the related interest and penalties are approximately $4.2 million. It is reasonably possible that the French tax authority will rule in MBIA Corp.’s favor within the next 12 months at which time the entire amount accrued, including the interest and penalties, will be reversed.

NOTE 8: Commitments and Contingencies

In the normal course of operating its businesses, MBIA Corp. may be involved in various legal proceedings.

In July 2002, MBIA Corp. filed suit against Royal Indemnity Company (“Royal”) in the United States District Court for the District of Delaware, to enforce insurance policies that Royal issued on certain vocational student loan transactions that MBIA Corp. insured. To date, claims in the amount of approximately $355 million have been made under the Royal policies with respect to loans that have defaulted. MBIA Corp. expects that there will be additional claims made under the policies with respect to student loans that may default in the future. Royal had filed an action seeking a declaration that it is not obligated to pay on its policies. In October 2003, the court granted MBIA Corp.’s motion for summary judgment and ordered Royal to pay all claims under its policies. Royal appealed the order, and, in connection with the appeal, pledged $403 million of investment grade collateral to MBIA Corp. to secure the entire amount of the judgment, with interest, and agreed to post additional security for future claims and interest.

On October 3, 2005, the U.S. Court of Appeals for the Third Circuit upheld the decision of the United States District Court for the District of Delaware insofar as it enforced the Royal insurance policies, but remanded the case to the District Court for a determination of whether the Royal policies cover all losses claimed under the policies. In particular, the Court of Appeals directed the District Court to consider whether the Royal policies would cover losses resulting from the misappropriation of student payments rather than from defaults by students. MBIA Corp. believes that the Royal policies would cover losses even if they result from misappropriation of student payments, but in any event it appears that all or substantially all of the claims made under the Royal policies relate to defaults by students rather than misappropriation of funds. Therefore, MBIA Corp. expected Royal to be required to pay all or substantially all of the claims made under its policies and to be reimbursed for any payments MBIA Corp. made under its policies.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Royal filed a petition with the Third Circuit requesting that the case be reheard, which was denied in April 2006. In April 2006, Royal filed a motion with the District Court seeking a release of the collateral it pledged in connection with its appeal of the District Court judgment against it in 2003.

On April 2, 2007, MBIA announced that MBIA Corp. reached an agreement with Royal to settle the outstanding litigation. The amount paid by Royal under the terms of the settlement was sufficient to repay the approximately $362 million of outstanding par amount of the bonds insured by MBIA Corp. as well as to reimburse MBIA Corp. for a portion of the claims that MBIA Corp. has paid to date under its insurance policies. As a result of the settlement, MBIA Corp. incurred approximately $20 million in losses in the first quarter of 2007. The loss represents a reduction to MBIA Corp.’s expected recoveries for claims it has paid to date under its policies and will be covered by MBIA Corp.’s unallocated loss reserves.

The District Court in Delaware entered a final judgment in the case implementing the settlement on March 30, 2007.

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